Crowfunding is defined as a process of raising small amounts of money from groups of people. It is also a tool to let you have early buyers and control the investors. Based on accountancy and business advisory, it is best described to be significantly higher than just a bank loan or business loan. Crowdfunding deals with the funding for your business. However, it is sometimes carrying a risk behind. Though it is recognized to provide security to your investment, will it be the right option? That’s still questionable.
Thus, finding crowdfunding alternatives can be the most considerable way to suggest. So let’s check out some alternatives to crowfunding that may be very useful to know and use for the business you are running now.
In this article, there are 5 selected alternative to crowdfunding that you may consider using to find loans for your business or startups.
5 Best Crowdfunding Alternatives to Support Your Business
The first alternative to crowfunding we would like to recommend is Invoice Finance. It provides a fast and flexible way of securing loans based on the value of business’s outstanding invoice to other companies.
For a small fee, a network of investors will come with an advance of up to 90 percent of the invoice value, making the business able to access funds that may not be ready for 120 days.
Invoice Finance is recommended by most of the banks. However, some challenger brands have very competitive and comparative rates as well as slick application process. In cash flow, it can plug short term gasps which can be more expensive than a bank. Invoice finance also offers admin support to collect outstanding invoice.
The second crowdfunding alternative you may want to consider is Asset Finance. This is an option you can take to help you run the businesses by spreading the cost of investing in equipment, ranging from computer systems, software and new machinery to commercial vehicles. This kind of crowdfunding alternative breaks down the payments into the more manageable installments.
Asset Finance is a way to get loans with the minimum impact on business cash flow. In some cases, it can also yield the tax benefits. Typically, there are several ways of arranging Asset Finance. Those are through leasing, contract hire and hire purchase.
Another alternative to crowfunding that is also widely used around the world is peer-to-peer lending. It focuses on online process pairs businesses to find loans with investors who have already had savings or capital. However, these loans can be sometimes unsecured or secured and the payments would be fixed like a standard loan.
Due to the fact that full financial records must be submitted, peer-to-peer lending offers an option to access finance in several days or weeks rather than months. The rates will be competitive if they are more expensive than the banks. However, the process of accessing your finance with this peer-to-peer lending is lots easier due to its similarity to crowdfunding in raising a finance from a number of investors who run the business together.
In this role, peer-to-peer lending will not allow you to give away any equity but pay the interest on the money you borrow.
There are some typical characteristics of peer-to-peer lending which are:
- The funding is sometimes conducted for profit.
- There is no necessary common bond or prior relationship between the borrowers and the lenders.
- There is intermediation done by peer-to-peer landing company.
- The transactions are done online.
- The lenders usually would like the borrowers to invest in if the platforms offers the loan facility.
- The loans can be either secured or unsecured and normally unprotected by the government insurance.
- The loans are secured and can be transferred to others for debt collection and profit although the transfer facilities are not always provided by the peer-to-peer lending platforms.
- Free pricing options and costs can be variously high or ten percent of the amount sold.
Early peer-to-peer lending comes also with the feature of disintermediation and reliance on social networks. However, these two features started to vanish into thin air. Thanks to the emergence of internet and e-commerce, the financial intermediaries become possible.
This way, most peer-to-peer intermediaries come with the following services:
- Online investment platform enables the borrowers to attract lenders and investors to identify and buy the loans that meet the criteria of their investment.
- Development of the credit models for the approvals of loan and pricing.
- Verification for the borrower’s indentity, bank account and employment.
- Display of borrower credit checks and filtering of the unqualified borrowers.
- Payment process from the borrowers and payment forward to the lenders who invest the loan.
- Loans service for the customers and payment collecting done from the borrowers who are in default.
- Legal reporting and compliance.
- Marketing on finding new lenders and borrowers.
Merchant Cash Advance
Merchant Cash Advance is another crowdfunding alternative that everyone could try. A Merchant cash advance provides alternative financing for the traditional small-business loan. In this case, the providers say that their financing is not a loan but a cash in exchange for future sales.
Merchant Cash Advance is a simple form of unsecured funding which requires you to pay back based on the credit and debit card sales. This means that the repayments are manageable enough and representative to the business performance.
In relation to the repayments, there are two ways of repaying. First, you can get an upfront sum of cash in exchange for your future credit and debit card sales. Second, you can the cash repaid by the remitting fixed daily or weekly debits taken from your bank account called ACH (Automated Clearing House) withdrawals.
Merchant Cash Advance has approval rates which are higher than many other forms of finance. It is also available up to one month’s business earnings. Though the products provided by this kind of funding are flexible for a business, but they can be more expensive than the high street loan.
Is Angel Investor also an alternative to crowdfunding? In the world of alternative investment, Angle Investor is defined as a high-net-worth individual who provides financial backing for entrepreneurs. It is usually in exchange for ownership equity in the company. Angle Investor is common among entrepreneur’s friends and family.
Angle Investor provides funds in a one-time investment to help and support the business during its difficult early stages. This way, the support that the angle investors provide is aimed for startups fosters innovation dealing with the economic growth.
Many startups find angle investing more appealing than other forms of getting funds, therefore, it often becomes the primary source of funding. However, the types of investment are risky enough and do not represent more than 10% of the portfolio of angle investor.
As one of the crowdfunding alternatives, Angle Investors use their own money for providing the funding. So, they are not like the venture capitalists who collect money from many other investors and strategically manage the fund.
Though Angle Investors are usually representing the individuals, the entity that provides the fund can involve a limited liability company (LLC), a business, and an investment fund among many other types of vehicles.
Finally, we can conclude that these crowdfunding alternatives are quite considerable. Depending on what you need for your business as well as your business scale, you can choose the suitable alternative to crowfunding.
So don’t hesitate to take an effort for getting the loans through the service. Invoice Finance and Asset Finance are common but if you want the one with the minimum impact for the cash flow, Asset Finance is much recommended.
Peer-to-peer lending is good for you if you want to find investors who have already capital so that you can support your business especially in a difficult stage.